Financial Regulatory Forum

EXCLUSIVE-Bank cop reworked in Senate financial bill-sources

By Reuters Staff
January 22, 2010

By Kevin Drawbaugh

WASHINGTON, Jan 21 (Reuters) – The beat walked by a proposed super-cop for banks is shrinking in the latest financial regulation reforms being debated in the U.S. Senate, said sources familiar with committee negotiations on Thursday.

Senate Banking Committee Chairman Christopher Dodd has called for the formation of a Financial Institutions Regulatory Administration (FIRA) to replace a current patchwork system that includes four bank supervisors in Washington.

But Dodd and other lawmakers, seeking compromise on this and other issues, are revising the FIRA proposal, said sources who asked not to be named because negotiations continue.

A new approach would still have Dodd’s FIRA absorbing the existing Office of the Comptroller of the Currency, the Office of Thrift Supervision and the large bank holding company supervision duties of the Federal Reserve, the sources said.

But the reduced FIRA would not police state-chartered banks that are now supervised by the Fed. Instead, the Federal Deposit Insurance Corp would handle those banks, as well as the many state-chartered banks it already oversees, they said.

The arrangement — if ultimately approved as part of a bill that still has weeks of debate ahead — would represent a major victory for the FDIC, a setback for the Fed, and a mixed result for banking industry lobbyists opposed to the FIRA.

Dodd’s super-cop is part of legislation he proposed in November that would overhaul U.S. financial regulation, a major goal of the Obama administration and congressional Democrats that has since undergone a stark reassessment.

Since the unveiling of Dodd’s 1,136-page bill, the U.S. House of Representatives has approved its own regulatory reform package; Dodd has announced he will retire at the end of 2010; and President Barack Obama has challenged big banks.

Obama on Thursday called for new limits on banks’ size, their proprietary trading and their ties to hedge funds. His new proposals followed the stunning win by a Republican in a special Senate election in Massachusetts and a run of strong quarterly bank profits and fat bonuses for bankers.

Bailed out by U.S. taxpayers just over a year ago, big banks today find themselves in a fight with the White House, while still facing a serious regulatory challenge in Congress.

Amid much criticism of the existing U.S. bank supervision system, the House passed a bill on Dec. 11 that would close the Office of Thrift Supervision and merge it into the Comptroller’s office. But the bill stops there, preserving the bank supervision roles of both the Fed and the FDIC.

Dodd’s bill, which takes a more radical approach, was immediately slammed by Republicans when it emerged. Dodd has since been in closed-door negotiations seeking a compromise.

He and Senator Richard Shelby, top Republican on the committee, have been working on the bank supervision issue.

Sources close to the discussion said that no final agreements have been reached, but progress is being made.

(Additional reporting by Rachelle Younglai; Editing Bernard Orr) ((kevin.drawbaugh@thomsonreuters.com, +1 202 898 8390, +1 202 488 3459 (fax)))

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